2021 has been a good year for dividends, especially in contrast to the year before. For investors who made the right choices, the gains from dividend income could rival capital gains from a number of FTSE 100 stocks. And it appears that the party could continue in 2022 as well. According to AJ Bell research, the total FTSE 100 dividend payout could reach £85.1bn, slightly above the levels seen in 2021.
The challenge with big dividend payers
However, I reckon identifying the biggest dividend payers going forward will not be quite as straightforward as it has been in 2021. I say this because as per the same research, 80% of dividends were generated by just 10 FTSE 100 companies. And I find it hard to believe that the same companies will continue to pay as well next year too. Miners, for instance, saw a huge run-up in stock prices and saw a robust performance, at least until earlier this year. However, commodity forecasts have been reduced now. And the recovery could be slower than expected because of the new strain of the coronavirus.
Unexpected FTSE 100 dividend stocks
In this case, I would change my long-term dividend investing strategy. Instead of going for big dividend yields, I would target big dividend growth. It turns out that the highest dividend growth is offered by companies with pretty low dividend yields. For instance, London Stock Exchange Group is expected to show a huge 15.7% increase in dividend yield in 2022. It is followed by Intermediate Capital Group at 14.3% and Ashtead at 12.5%. Over the past decade as well, they have shown double-digit growth in dividends.
Compare this to their current dividend yields at 1.1%, 2.7%, and 0.7%. This is no random coincidence either. All three have been high-growth stocks over the years, so their huge dividend increases as a proportion of their share prices remain low. But over time, I think these are some of the best stocks I could hold. I like all three stocks for capital gains in any case, and considering their dividend growth, I think they could make great additions to my passive income portfolio as well.
The potential stumbling blocks
I am just a bit hesitant, though. Much as I like to consider historical trends, the future could be different from the past. Like in the case of the London Stock Exchange Group – its stock has not done well this year, ostensibly because investors are concerned about the huge costs on its books from the Refinitiv acquisition. I think acquiring the financial markets data and analytics provider was a potentially savvy strategic move, but only time will tell how well it gets managed.
So, while I am bullish on all three stocks, I would research them further to get a better assessment of whether it would be a good idea to buy them and how long my holding period should be. So far though, I like all three stocks. They are on my list of stocks to buy in 2022.
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies still trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.